Over my last twelve years working as a senior executive in the technology industry I have had an opportunity to engage with a broad section of technology and IT analysts and researchers – both from established firms (eg. Gartner, Forrester etc.), smaller more focused firms (eg. Altimeter Group) and of course the more recent phenomena of the blogger/independent analyst.

For the most part the people I have encountered are smart, have a good deal of domain knowledge, are good communicators and care about providing timely and accurate analysis and advice. But with all other things, there is a bell curve, there are some people that have amazing insight and I always learn from then, there are a whole bunch in the middle that are solid and sometimes can add good value and as always there are some that really should look to do something else with their time.

This post is not about the individual analysts it is about the analyst industry.

So the issue is not the people – the issue is the structure of the industry and the inherent incentives that lead to sub-optimal analysis and advice that is tainted by accusations of “pay to play”. This is a topic that is not new, and has been discussed before. The general complaint that analysts play both side of the game, they write about vendors and the industry but then also get paid by the vendors thus tainting their advice is an old one.

The reason I thought this topic was important to revisit is because (1) there have been some structural changes to the technology industry that make the current IT analyst model seem archaic and (2) I have some specific thoughts on how we might try and reform the industry.

Why Change is Even More Relevant Today: There are several important changes that have taken place in the technology industry that will require some rethinking of the traditional IT Analyst Industry.

Lack of Defined Categories: Traditionally we have had very specific functional domain experts – the CRM expert, the BI expert etc. I don’t think customers buy in categories any more – they buy solutions that transcend software category boundaries – thus making research papers focused on these categories less relevant.

Integration of Consumer & Enterprise: This is one of the bigger changes in the industry – the “consumerization of the enterprise”. Now more than ever there is no classic enterprise software play. As such, analysis and advice based on deep enterprise background, without the latest thinking on consumer sw trends (and just focusing on social media does not cut it) misses integrating a fundamental change in the industry.

The Rise of the Consumer as the Buyer: Traditional analyst work has focused on providing insight to the CIO and associated IT teams in enterprises. Analysts spend a great deal of time with vendors and CIO – but the decision makers are increasingly the end users. We still see very little end user based research at traditional analyst firms

Not Enough Focus on Start Ups: Research coverage is still based on large and medium sized vendors. This is partly due to the influence of these vendors, partly because they can afford to pay consulting fees and therefore get more attention. The reality is that startups is where the innovation happening and there is no effective model today to provide customers the timely effective insight on the innovation taking place with smaller companies.

What Can We Do – Some Suggestions: IT/Technology Analysts can play an important part in acting as sources of unbiased and informative research and analysis. Here are some suggestions for the industry to consider.

Focus on Industry Segments not SW Categories: The buyer of software is seeking the solution to a problem. These challenges arise out of specific dynamics of an industry (eg. Retail, Banking etc.). Analyst firms should build up much stronger expertise in industry knowledge to make the advice more relevant and specific.

Rate Analysts and Firms: The financial analyst industry has it partly right (notwithstanding the failure of analysis in the financial meltdown). Equity analysts provide very specific recommendations and then based on their insight and accuracy they get a rating. Top analysts and firms get paid more and have more influence – this seems the right approach. I agree that it is marginally easier to rate the accuracy of financial analysts – but I am sure the industry can come up with a standard rating system that provides customers and consumers some insight on this topic. There are plenty of examples and methods to choose from – Yahoo even has a “Analyst Performance Center” for this purpose. This would be a great business idea for an independent firm to provide analyst ratings for IT/Industry analysts – I bet customer and vendors would buy this research.

Transparency of Relationships: This will help address the “pay to play” topic. I think specific analysts and firms should clearly make transparent their economic relationship to a vendor and this information must be attached to every report and visible on the firms website. I think the preference would be to provide the dollar amount but that is probably going to far. A more radical approach to this problem – use “Buy Side” and “Sell Side” analysts. You either work with customers only to advise them on deals etc. or you work with vendors only to write on their innovations.

Stop Using IT Lingo: I have written about this in a previous blog posting “Why Words are Killing the Adoption of Innovation” Somehow we think that the more complicated the words the more insightful and important the analysis. This could not be further from the truth. The industry would be much better placed if they focused on the clarity and simplicity of the analysis. Vendors already make it impossible to understand what they are really selling – sometimes analysts add to this confusion.

Foster Independent and Small Analyst Firms: The consolidation in the analyst industry has resulted in bigger firms with more market power – this is fine, but it should be balanced with smaller and independent firms that innovate on how they are trying to bring new research and analysis to the market. Constellation Research is a new firm that is seeking to innovate in this area and I look forward to following their progress.

These are just a few suggestions for us to consider. I am sure not everyone will agree with me and I am sure my analyst friends will have a relevant point of view based on their experience – I would welcome the feedback.

Yahoo is a company that has always intrigued me. Over the past few years we have all read about the issues facing Yahoo – lack of a clear strategy, management challenges, the on again off again romance with Microsoft and a stock price that has gone from about $35 about 5 years ago to $16 today. And even todays stock price has built into it a significant value from China’s Alibaba.

Clearly Yahoo needs a growth strategy. So here is the “Right Question” Should Yahoo develop and execute on a strategy to provide a comprehensive set of services for the enterprise ? I think they should seriously explore this as an option.

Lets review what some of the current trends are in enterprise software – let me throw out some buzz words – cloud computing & SAAS, social media in the enterprise, social CRM, crowdsourcing, structured and unstructured data, Enterprise 2.0 and so on. In essence, many of the innovations in the enterprise are being driven or inspired by innovations in the consumer web. This is the core of the Enterprise 2.0 approach.

On one hand you have the pure consumer focused companies – Facebook, Google, Twitter etc. On the other hand a new generation of enterprise focused companies are extending these new approaches and seeking to integrate them into the enterprise, SocialCast, Yammer, Ning, Jive etc.

Now lets take a look at Yahoo. Despite its challenges the company is still a consumer technology leader. Some ideas – if a consumer online store – Amazon – can create the leading cloud platform for the enterprise Amazon EC2 then why cannot Yahoo leverage its data center and web management expertise to provide an enterprise cloud infrastructure and apps. Yahoo Finance is a strong product and has interesting potential to be connected with other enterprise apps to provide integrated structured and unstructured information. Yahoo knows how to build communities (maybe not as good as Facebook) but still good enough. Yahoo can be a strong player in providing social media capabilities for the enterprise. You can even consider integrating Yahoo Jobs into enterprise HR systems to provide an end 2 end business process for talent management.

I know that Yahoo has considered some of these options in the past and considered partnerships with enterprise software firms – but these plans never took off and the company focused on its consumer roots. Maybe some of these ideas are currently being discussed in the company – I hope they are.

So I don’t know if a more enterprise focused strategy (to complement the consumer work) is a viable option for Yahoo at this stage but I think it is certainly something that the Yahoo management should explore carefully – certainly if there is any truth to a private equity buyout of Yahoo this should be part of the strategy.

As usual, I appreciate your thoughts and comments – especially from current and past Yahoo employees and experts.

I recently looked up the definition of Enterprise Software in Wikipedia and saw the following description: “Enterprise software, also known as enterprise application software (EAS), is software used in organizations, such as a business or government,as opposed to software chosen by individuals.”

The first part of the definition seemed good enough. It was the second part that struck me. Enterprise software is something other than “software chosen by individuals”.

So here is the problem. Enterprise software is usually purchased by the IT department and the Office of the CIO but is used by the average business or general user. Now there are good reasons why the IT department needs to be involved, compatibility, integration, security, scalability etc. etc. etc. However the voice of the end user seems to play a much smaller role than the case should be – it is not always “software chosen by individuals”.

So this is what creates the principal – agency problem in the purchase of enterprise software. The “Principal” (the IT Department) is supposed to fully represent the interests of the “Agent” (the end user or individual) and purchase software that always fully meets the needs of the end user – this often does not happen as evidenced by frequent complaints from end users.

So how can we solve this problem – how can those who are the primary users of business software gain more power to control what software is purchased by the IT department on their behalf. Here are some logical suggestions.

1- The budget for enterprise software purchases should be controlled by the business units. This may seem like a radical suggestion (though it is tried sometimes) and has potential issues. However, I am a strong believer in the theory that those who are most impacted by a decision should own the resources that dictate that decision.

2- A software decision team of 5 should make the decision – 3 users, 1 IT & 1 Finance Representative. The number can be different but my point is that the decision should be weighted towards the voice of the end user. Now before some of you quickly point out that the end users don’t have all the knowledge or skills to make a decision – you can simply manage this by IT selecting from a list of solutions pre-approved by the end user representatives

3- Conduct a minimum 3 month pilot with at least 5% of the users. Yes I know this can be expensive, but vendors may want to consider having demo systems that can actually be used by potential users. Nothing like actually using the software to determine if it will do the job. If it is possible to have two parallel demo systems in place by competitors that is even better.

4- Have minimum user experience ratings as part of the acceptance and payment criteria. One of the challenges of non-SAAS software is that once you have purchased it you are stuck with it whether you like it or not. Having a payment schedule over a year that partially rests upon user “happiness ratings” may be a good idea. For SAAS software you could argue this is built in as you can stop paying after a couple of months if you don’t like the software.

Now before my vendor friends get upset that any or all of these suggestions will make the sales process longer and more complex I would say the following – the enterprise software industry has to finally realize that the “customer” is not a faceless corporate entity or even the IT department – it is the end/business user that will use the software on a day to day basis.

If you make the end user happy – you will sell more software – it is as simple as that.

So the “Right Question” is what can we do to ensure that the needs of end users are not only met but their wildest expectations are exceeded. This is what drives consumer software and this is what should drive enterprise software because we are selling to the same people !

Vilfredo Pareto is one of my all time hero’s. His famous 80/20 rule has on numerous occasions saved me a lot of time and effort. It is actually quite incredible how often this simple rule that 80% of effects come from 20% of the causes shapes our thinking and our actions.

It is equally incredible how often we ignore this powerful theory and continue to hope that the results will be different if we only keep throwing resources at a problem. The reason I wanted to invoke the memory of Pareto and his famous principle was to explore its application towards the benefits we get from software solutions.

Now I am a firm believer in the benefits of software and how it can and does improve our lives, our businesses and our global economy. But here is the Right Question: At what point do additional improvements or added functionality in a software product make little or no difference in enabling a user to get his/her job done.

Let’s take MS Excel as an example. I would consider myself a moderately sophisticated user of Excel. I have been using Excel for many years especially during my time as a investment banker. Excel was first released in the mid- 1980’s so it has been around for over 25 years. There have been significant improvements in Excel since those early days in user experience, functionality, integration with other programs etc.

But here is the issue. I cannot quantify this but I am pretty sure that in my best Excel moments I do not use more than 10-15% of Excel’s vast capabilities. Yes there are probably some people who use maybe 30-40% but it is more likely that the vast majority use only a small fraction of its formidable capability.

Now let’s look at an example from the world of enterprise software – in particular CRM (Customer Relationship Management software). Now the only goal of CRM is to drive sales in a cost effective manner. There should be no other objective for deploying CRM software. If your company does not have CRM software you can certainly benefit from CRM software at the appropriate stage of scale (no a two person company does not need CRM they just need a piece of paper and a pencil !). But similar to my example of Excel, at what point do you already get the 80% benefits from CRM software ? Is it at the first purchase, is it on release no. 4, or do you ever get there ?

I don’t know the answer and many will rightly argue that “it depends”. This is always a difficult argument to win because it is a powerful argument – especially when you don’t have the courage to make a decision. But as an executive or as a technology professional we are paid to make decisions not live in a land of “it depends economics”.

So here is my assertion. The right software can play a critical role in driving growth and managing costs for any business – here I have no doubts. However, I would also argue that it is more important to have a broader and integrated technology footprint than to go deep (read deploying new versions) in any specific functional category. So, better to have an integrated suite (eg. CRM, financials, supply chain, procurement, HR, mobile workforce etc.) than to buy the version 4.0 of any specific product.

If Pareto is right – and he almost always is – we probably use only 20% of any given software application capability to generate 80% value created. Interesting thought.

I am sure many will disagree with me and I look forward to the comments and input.

There are tens of thousands of business books published each year. Some provide useful new insights, but most repeat the obvious in new fonts, colors and charts. However sometimes a book or theory comes along that wakes you up and provides an amazing new perspective into building and managing companies. The Innovator’s Dilemma by Clayton Christensen tops my list as one of the most influential and relevant modern business books. During my time as head of corporate strategy @ SAP I had the privilege of engaging with Prof. Christensen and came to respect even more the timeless nature of his thinking.

As a quick refresher the Innovator’s Dilemma asserts that incumbent companies can only do “sustaining innovations” as they seek to protect their existing customer base, margins and business models. “Disruptive innovation” comes about when new entrants develop technologies that initially target markets that are unattractive (eg. smaller markets, lower margins, simpler products) but over time that innovation moves up to the higher-end and eventually dislodges the incumbent. This has happened over and over again. On demand/SAAS software is a recent example in the technology industry.

There are several other notable books that have over the years have made significant contributions to our thinking – for those short on time and attention span may I suggest you read “The 100 Best Business Books of All Time” to get a crash course in business strategy and insight.

The purpose of this blog post is not to explain the Innovator’s Dilemma nor is it to provide my views on the merits of various business books. Rather the intent of this post is to explore the impact of disruptive innovation on the go-to-market or sales channel strategy of a company.

For simplicity sake, let us focus on the software and technology industry as an example. The pace of innovation is breathtaking – both by large incumbents but especially by start-ups. The bulk of this innovation is what I would call product innovation – think iPad, smart phones, chip and memory technology, voice recognition etc.

In certain situations there has been a business model innovation – think software as a service, online advertising, and “freemium” (though this one I still have doubts about as the “premium” part often does not happen).

In a few cases there have been significant new advances in the sale/go to market models, mostly in the consumer space – think eCommerce (Amazon) , iTunes (Apple) , mail order movies (Netflix – now of course online). In each of these consumer models companies were able to create new ways to access the customer – the person paying for the product.

So far so good. Great new innovation, new business model and in some cases new sales channel for consumers.

So here is the challenge – there has not been much innovation in selling to the enterprise. Over the last couple of months I have met tens of companies and talked to them about a range of topics related to starting and running a disruptive business. The overwhelming challenge faced by those seeking to sell to a business is not the new product they have developed, it is not that the product is difficult to understand, it is not that it take a long time to implement – rather the challenge is the enterprise sales process.

Especially with the heavy consolidation in the enterprise software industry the incumbents have a significant advantage that is not impacted as much by the pace of start-up innovation – this is their direct distribution channel.

Is the “Sales Dilemma” overtaking the Innovator’s Dilemma ? That is the Right Question…

After so many suggestions from colleagues and friends that I start a blog, I finally decided to give it a try – so here goes. Though I have been an active consumer of user-generated content such as blogs, wikis etc. I have not been an active contributor until recently.

I started becoming active on Twitter a few months ago and found that medium to be an amazing source of insight and knowledge from some very smart people. I enjoy the debate and dialogue on Twitter and wanted to continue that conversation beyond the 140 characters.

Why “The Right Question” ? Well over the years I have come to learn that it is far more important in your personal and professional life to be able to ask the right question – preferably at the right time – than be always ready with the right answer. There are to many times where mistakes are made, billions of dollars lost, or in the worst case lives are lost, because there was a rush to judgement on the answer and to few people had the courage or insight to ask “The Right Question”.

I hope that thorough this blog, and with your active participation and input, we can together ask the right questions and direct these questions to the people around the world who surely have the right answers.

The topics I will choose to discuss will be varied, though a large portion will relate to the software and technology industry, to how we can design and build customer centric ecosystems, to the use of social media and mobile technology in the enterprise, to the importance of applying design thinking in all aspects of business and finally, to anything else I care about !

So with this short note I am pleased to launch “The Right Question” and look forward to many interesting discussions and debates with all of you as we explore our exciting collective future.